Bellevue Healthcare Strategy (Lux)

Most stock markets made gains in July. The global MSCI World equity index advanced 3.4% (in USD). The healthcare sector trailed the broader market, as reflected in the MSCI World Health Care Index’s gain of 1.3%. The Bellevue Healthcare Strategy (Lux) Fund returned 3.0% (I shares) in July and thus outperformed its direct benchmark.
 
Both the ECB and the US Federal Reserve raised their key lending rates again, as widely expected. Overall inflation is moving in the right direction in most regions and there is a general consensus that the rate-hiking cycle will soon come to an end. The biotech company Argenx was a strong driver of portfolio performance in July (+29.6%). Argenx reported positive topline results from a Phase III clinical trial evaluating Vyvgart Hytrulo (efgartigimod alfa and hyaluronidase-qvFC) in adults with chronic inflammatory demyelinating polyneuropathy (CIDP). The drug has already been approved as a treatment for patients with myasthenia gravis, and has been successfully launched in this indication, but the market potential in CIDP is much greater. From a regional perspective, the Chinese stocks in the portfolio delivered improved returns during the past month. This reflected to some extent a rebound following weakness in these stocks during the previous months. But fundamental news flow also played a role in their rally: investors cheered both Wuxi Biologics' (+18.0%) plans to spin off its antibody-drug conjugate business and the latest quarterly figures released by Wuxi Apptec (+18.3%). Generally speaking, there were no big surprises in the quarterly earnings announcements that have so far been published by portfolio companies – both in a positive and a negative sense. Although its H1 2023 results were good, Lonza (-2.5%) came under some pressure because of the cautious guidance its management gave for the remainder of the year.

 

The investment process for the Bellevue Healthcare Strategy Fund resembles the rules-based investment process that Bellevue has successfully applied since 2007. In this approach, the 40 most attractive stocks in the healthcare sector worldwide are selected every six months. The Bellevue Healthcare team screens about 700 of the 4000 listed companies in the healthcare sector worldwide based on four quantitative criteria (PEG valuation, price/sales, sales growth and EBITDA/sales) and four qualitative criteria (assessing the company's management, product pipeline, operating risks and country-related risks). The ten most promising stocks from four different regions – Western Europe, North America, Japan/Australia and emerging markets – are selected. The maximum weighting of the region with the highest overall score, which is usually North America, is capped at 35% during the periodic rebalancing, which increases the emphasis given to emerging markets. Companies with rich valuations and low growth rates will rarely be selected for the portfolio. Mid cap stocks have typically represented 60-80% and the Asia region approximately one-third of the portfolio. Pharmaceutical stocks are clearly underweighted compared to the MSCI World Healthcare Index. Bellevue has applied this investment approach since April of 2007 and it is used to compile the Adamant Global Healthcare Index.